Case Law Summaries

Riviere v. Fu

CORPORATIONS; VEIL PIERCING — A corporation is a separate entity from its shareholders and, in the absence of fraud or injustice, the corporate veil will not be pierced to impose liability on its shareholders.

A children’s clothing seller entered into an oral agreement with a designer. The designer, through her corporation, agreed to provide the seller with samples to exhibit at two trade shows as part of her collection. The seller was disappointed with the quality of the designer’s clothes at the first show, although the seller received three orders. However, the designer never filled those orders. The seller did not attend the second show because the designer did not provide her with suitable clothing. The seller was still required to pay the exhibition fee and also incurred other charges for fabrics and patterns.

The seller sued the designer for breach of the oral contract. She sought compensatory damages, including lost profits on the three orders that the designer failed to fulfill. The lower court found that the designer had breached the contract by failing to fulfill the orders from the first trade show and by failing to provide samples for the second show. The lower court awarded damages for the various out-of-pocket expenses incurred by the seller. These included the fabrics and materials, as well as the fee to rent the exhibit space for the second show. The damages also included lost profits on the three orders that were not fulfilled. The designer appealed, claiming that since she operated the business through her corporation, she should not have been held personally liable. She also claimed that the court’s award of lost profits was speculative and unsupported by the evidence. The Appellate Division agreed and reversed in part.

The Court agreed with the designer’s argument that since she did her design work through her corporation, it was improper for the lower court to hold her personally liable. The judgment should have been entered against the corporation instead. It noted that a corporation is a separate entity from its shareholders and that, in the absence of fraud or injustice, the corporate veil will not be pierced to impose liability on shareholders. In this case, it was clear that the designer always did business in the fashion industry through her corporation. Therefore, absent any fraud, the judgment should have been entered against the corporation and not the designer. The Court noted that since there was no evidence of fraud, it also was inappropriate to impose liability on the designer individually.

The Court also reversed the lower court’s grant of lost profits, noting that even though the seller was not obligated to prove the exact amount of lost profits, there must still be a reasonably accurate and fair basis for computation. That did not happen in this case. The buyer speculated that it would have cost the designer about one-half of the order cost to produce the clothing, which the lower court relied on in calculating the lost profits. However, the buyer never provided any documentation of the seller’s real manufacturing costs. She only offered speculation regarding the designer’s cost, which amounted to a “net opinion” that could not be considered.